Ad revenues are up, but challenges with measurement and
subscriber churn remain
If it wasn't already clear, 2018 demonstrated that the lines
between traditional and digital are blurring, driving the growth of
cross-channel video strategies and with mobile taking an increasingly
significant share.
Digital advertising in Europe grew by 10% to €25.7 billion
($29.3 billion) in the first half of 2018, on track to surpass €50 billion by
the end of the year, according to the AdEx Benchmark Study, a collaborative
report published by the Interactive Advertising Bureau (IAB) and IHS
Markit (registration required). The prior year's study recorded 2017's market
value as €48 billion
The study revealed that mobile is set to take a 50% share of
the total ad spend in 2018 with Eastern Europe leading the charge. Belarus,
Serbia, and Russia were the fastest-growing European countries for mobile ad
spend during 2017, according to full-year IAB Europe research, up 33.9%, 23.7%,
and 21.9% respectively.
Native advertising spend (such as sponsored content and
in-feed ads that blend into the format of the site rather than traditional
banner ads) is expected to top $85.5 billion across Europe by 2020, also per
the IAB.
Indeed, the growth of digital advertising as a whole has
doubled in size over the past five years according to IAB Europe, a rise it
attributes in part to take-up of programmatic formats.
Automation allows ads to be targeted at a very granular
level at lower cost than traditional advertising. By focusing more on
programmatic advertising, advertisers are trying to break free from traditional
media buying methods in a hope to get hold of the attention of millennials and
Gen Z (13- to 17-year-olds) who are bombarded with endless content every
second.
"As programmatic advertising becomes increasingly
popular and pervasive, it will become more complex to engage the desired target
effectively and, in time, execute successful campaigns," advised Nielsen. "To
successfully break through the clutter, advertisers must focus on two crucial
objectives: effectively reach Gen Z in their environment and provide compelling
addressable content."
Programmatic Scales for Live
Appointment viewing used to be broadcast's domain, but even
this is being eaten into by digital, and with it another chunk in broadcast's
sales armour.
Yet there's a problem of scale, argue ad tech vendors like
YoSpace whose CEO, Tim Sewell explains, "In live OTT, all viewers go to an
ad break at the same time, putting huge strain on an ad server which will have
to manage a bombardment of ad requests. Delivering addressable advertising at
scale is the next big challenge for broadcasters and rights-holders."
YoSpace addresses this with Prefetch a technology which is
able to detect an upcoming ad break before it happens. Ad calls are made early
to an ad server, such as SpotX, which then have more time to instruct the
programmatic marketplace and generate the highest possible CPM and fill-rate
for the rights-holder, Sewell explained.
Among users of Prefetch is BT Sport. "Live inventory is
a growing sector of our business and as audiences continue to consume content
across multiple platforms like OTT, monetizing live video becomes even more
important," SpotX CEO Mike Shehan noted in a YoSpace blog.
Building Back Trust
Given all this growth it would appear that digital has
shrugged off the frailties of the last couple of years, when question marks
were placed against the efficacy of social media channels in particular.
However, ad-tech has still not emerged from its identity
crisis. The UK's DPP (Digital Production Partnership) released a report in
September on the future of video advertising which concluded that a series of
new, collaborative relationships need building if the historically close
relationship between advertisers and content makers is to be successfully
reshaped.
"Advertising models still have a very strong reliance
upon linear TV at the same time that advertising, video content and consumer
behaviour are all shifting online," explains DPP managing director, Mark
Harrison [go2sm.com/dpp]. "The question is: Will a whole new advertising
model around online video be formed, or will we see a brand new commercial
model emerge?"
Following, Proctor and Gamble's decision in 2017 to pull £72
million ($91 million) of digital ad spend (with little impact on its overall
sales) from social, the start of 2018 saw Unilever unleash its own critique of
Google and Facebook.
Its chief marcoms officer Keith Weed called on the giant
social channels particular to clean up the "swamp," although Unilever
stopped short of removing ads from YouTube. He argued that simply threatening
to withhold advertising dollars from digital platforms while expecting them to
solve their own content challenges wasn't the proper course for the industry.
Unilever is, however, experimenting with how blockchain
might achieve complete transparency on digital ad transactions.
In October, SpotX and five other ad tech vendors
(including Sovrn, OpenX and Pubmatic) promoted programmatic ads as a
means to underpin a "trustworthy marketplace." Its mission includes a
fully auditable supply chain and clear auction rules and is backed by the
industry (IAB/ Association of Advertising Agencies) accountability program the
Trustworthy Accountability Group.
"Programmatic advertising has provided a scalable way
for advertisers to leverage the massive amounts of data available today to
serve consumers the right content at the right place at the right time,"
claimed SpotX's Shehan.
Measurement Not Solved
It is not dubious content so much as the lack of digital
measurement standards and the potential fraud that comes along with it which is
the chief concern for Unilever and all major advertisers.
As Weed told the IAB, "One viewability measure makes
sense from a perspective of clarity and simplicity, but advertisers don't
currently agree on what this should be."
Advertisers, of course, have to deal with myriad devices,
platforms, shows, live, catch-up, and VOD, in order to find the right
audiences. ITV Hub, the VOD service for broadcaster ITV, for example, is
available on 27 platforms. In turn, many of those platforms will give
advertisers better opportunities to target specific audiences.
Multiple efforts are underway to bridge the gap between the
sample-based methods used for measuring broadcast audiences and digital
measures of multiscreen viewing.
In the UK, the Broadcasters Audience Research Board (BARB)
finally released Dovetail, its multi-screen project. But it was only part one
of a three-phase introduction, with dates of rollout for parts two and three
still to be confirmed. The phase it has launched is to report multi-screen
programme ratings across TV, tablets, PCs, and smartphones.
To do this, BARB is now combining census-level data from
software embedded in broadcaster-operated VOD services like BBC iPlayer with
cross-device panel data from its panel of 5,300 homes.
Phase two will report the extent to which tablets and PCs
increase the number of viewers and average weekly viewing time for
BARB-reported channels; the final stage of the process, multiple-screen
advertising campaign performance, is in development but requires the
co-operation of service providers like Amazon and Netflix—co-operation which
has not been given.
Incidentally, the European Broadcaster Exchange (EBX—a joint
venture of broadcasters including Channel 4 and Germany's ProSiebenSat.1 to
unite their online and digital platforms for programmatic media buys—has yet to
launch, despite being scheduled to do so early in 2018.
In the first half of 2018, EBX said it "invested
heavily in a first-of-its-kind tech stack with a unique remit to aggregate and
streamline the supply of advanced TV formats across multiple European
broadcasters, resulting in greater media buying efficiency.".
Impact of GDPR
Distrust in the scraping of personal data came to its
(possible) zenith with the furore over Cambridge Analytica's secret gathering
of 87 million Facebook users' data. The introduction of the General Data
Protection Regulation (GDPR) just two months after the Analytica story broke
should stem such breaches in future, with the strengthened privacy practices
believed to shore up the digital ship.
The new legislation means users have to give explicit
consent for personal identifiable information to be processed. This is
particularly relevant within the digital sphere when working with such data as
a device ID, a cookie ID, or an IP address.
The deadline for GDPR in May impacted data-driven
activations in the first half of 2018, reckons IAB Europe, making key market
players cautious.
"Uncertainty associated with GDPR impacted advertiser
confidence in most markets, causing slower growth in digital ad spend between
March and June," commented Daniel Knapp, Executive Director TMT at
IHS Markit.
The overall impact, though, has been positive in building
trust in the industry. "GDPR doesn't prevent the collection of audience
behaviour data, but does ensure that consumers are fully aware of what data is being
captured and how it is being used," says Aditya Ganjam, chief product
officer at Conviva. "Ultimately this will help weed out bad actors
and should prove beneficial to the industry."
Ecommerce Spends Big on TV
UK TV ad revenue declined in 2017 for the first time in
seven years, according to figures from Thinkbox. Revenue totalled £5.11 billion
($7.07 billion), down 3.2 percent on the record high set in 2016, although the
commercial broadcasters trade body expected sales to bounce back by end of
2018.
It attributed the decrease to "ongoing economic and
political uncertainty with a weakened pound and inflationary pressure leading
some advertisers to reduce TV investment;" i.e., Brexit. Perhaps
unsurprisingly given its cold shoulder to online, P&G was the most viewed
advertiser on UK TV in 2017 with 33.5 billion views. Thinkbox was also at pains
to point out that e-commerce brands such as Amazon, Netflix, and Expedia are
spending heavily on TV for reach and influence.
According to figures compiled by The Global TV Group, a
grouping of broadcasters' and sales houses' trade bodies in Europe, the U.S.,
and Australia, Airbnb'sTV ad spend in Germany increased by 44% between 2015-17;
Amazon's TV ad spend in Spain went up 100 times in three years to reach over
€11 million ($12.4 million); Brands such as Trivago and Google
invested £682 million ($868 million) in TV advertising in 2017, up
from £590 million ($751 milliion) in 2015.
SVOD Overtakes Pay TV
Global SVOD revenues topped $35.04 billion in 2018, an
increase of more than 40% since 2017's $24.87 billion and 214% since the $11.16
billion in SVOD revenue during 2015, Digital TV Research. While the biggest
gains came in China, the researcher suggests Germany has the third-highest
revenue climb since 2015 at 248%, a total of $1.038 billion, up from $298m in
2015. However, Germany's SVOD revenues are exceeded by Japan ($1.093 billion,
up 43%) and the UK ($1.758 billion, up 186%).
Such figures are correlated by latest research from the
Nagra/MTM developed Pay-TV Innovation Forum (registration required). In the UK,
for example, the total number of subscriptions to the UK's three most popular
online streaming services—Netflix, Amazon Prime and Sky's NOW TV—reached 15.4
million in Q1 2018, exceeding for the first time the number of pay TV
subscriptions, at 15.1 million.
Nagra/MTM notes, however, that UK pay TV subscription
revenues—£6.4 billion ($8.1 billion) in 2017—continue to dwarf subscriptions
revenues from OTT services, which reached £895 million ($1,139 billion) in 2017
(figures taken from its most recent research).
Nor is SVOD revenue growth likely to slow. DTV reckons it
will chart above 40% for several years to come, not least a result of the
arrival of 5G mobile services and the continued trend toward adoption of
multiple OTT services.
Juniper research found that UK consumers acquire an average
of 2.5 subscriptions each. Other research from Nagra/MTM states the number of
UK households with at least one SVOD subscription as 11.1m.
An Ampere survey of Q3 2018 found that Germany, Spain, and
the UK now have more SVOD-only homes than pay TV-only homes (joining countries
which already hit this mark like the U.S., Australia, Sweden and Italy) while
France, Poland, Turkey and the Netherlands have yet to make the
transition.
This comes at a time when more and more SVOD services are
launching, not least from broadcasters and content producers attempting to go
direct to consumer.
As Ooyala's global sales development manager David Gordillo
observes, if all new services go SVOD OTT, viewers can't subscribe to them
all.
"That creates a really high barrier to entry for
start-ups and traditional broadcasters who want to go DTC with a subscription
model. If the OTT bill starts to look as fat as the cable TV bill, with
thousands of channels that viewers will never watch, this opens the door for a
disruption to the OTT market, similar to what we saw happening with Netflix and
traditional TV."
As the new "post-OTT" pay TV landscape becomes
increasingly fragmented, many industry executives expect to see a second wave
of content re-aggregation. According to the Pay-TV Innovation Forum, this
model—where companies offer a range of pay TV and OTT content and services via
a single subscription—is seen as a way of simplifying a fragmented marketplace
for consumers, while also offering additional growth opportunities for some of
the well-established telcos and pay TV platforms.
"The lines between pay TV and OTT are blurring,"
states Nagra/MTM. "Most traditional pay TV providers are now looking to
offer converged pay TV/OTT services to their customers, as service providers
move towards a platform-agnostic model. As a result, the pay TV market is
transitioning into a paid-for-video market."
In many markets, pay TV providers are moving beyond core
content services delivered via the set-top box. "Many industry executives
believe that network infrastructure and billing relationships – rather than
proprietary set-top boxes – are now the gateway to the customer," it
states.
The astonishing near monopoly on pay TV middleware made by
Google's Android TV in the last 18 months fits this trend. Android TV (operator
tier) offers all but the largest pay TV providers (like Comcast, which remains
wedded to its huge investment in RDK) a cost-effective and rapid on-ramp to
adding OTT (notably YouTube and Netflix) with inbuilt voice control. In theory
all that's needed is a customised UI to differentiate each operator.
Churn Levels Unsustainable
There's also a considerable risk of churn. Parks Associates
research suggests up to 30% of OTT subscribing households have cancelled one or
more services within the past year.
Ampere projects that even Netflix (which does not publish
churn rates) is estimated to churn between 20-25% of its subscribers (in the
U.S.) over a six-month period, according an article in Advanced Television.
By comparison, most successful pay TV operators with very
satisfied customer bases much lower churn rates, with various reports showing
numbers from below 2% to as high as 12%. SVOD's typical one-month rolling
contracts mean that there are fewer barriers to churning and
re-subscribing.
"In an increasingly crowded and competitive marketplace
where subscriber acquisition costs are already high and soaring, the 20-30%
average is an unsustainable level of churn," says Dime Serafimov, demand
generation manager at Cleeng.
Cleeng's prescription is a better gathering and analysis of
subscriber to be able to proactively nip potential app-cutters in the bud.
"The simple truth is that churn rate
optimization—reducing the number of customers who abandon your product or
service—is more essential to SVOD profitability and long-term success than
conversion rate optimization," he says.
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